Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 64

Analytical case—complete an income statement and balance sheet using financial ratio data Partially completed financial statements for Whittaker, Inc., follow:

WHITTAKER, INC. Income statement For the year ended December 31, 2011
Sales		$	?
Cost of aoods sold			?
Gross profit		$	?
Operating expenses			?
Income from operations Interest expense		$	?
			?
Income before taxes		$	?
Income taxes (20%)			?
Net income		. . . $	?

 

WHITTAKER, INC. Balance Sheet December 31, 2011
Total liabilities and owners’ equity	$ ?
Additional information:
• Financial ratios computed from these financial statements include the following:
Current ratio	1.9 to 1
Acid-test ratio	1.3 to 1
Debt/equity ratio	2.0 to 1
Inventory turnover	4.0 times
Accounts receivable turnover. . . .	6.8 times
Times interest earned	4.45 times
Gross profit ratio	40%
Return on investment	12%
Earnings per share	$5.52

• All sales during the year were made on account. Cash collections during the year exceeded sales by $14,000, and no uncollectible accounts were written off.

• The balance of the accounts receivable account was $57,000 on January 1, 2011.

• No common stock was issued during the year.

• Dividends declared and paid during the year were $7,600.

• The balance of the inventory account was $48,000 on January 1, 2011.

• Interest expense on the income statement relates to the 15% bonds payable;

$10,000 of these bonds were issued on May 1, 2011; the remaining amount of bonds payable were outstanding throughout the year. All bonds were issued at face amount.

Required:

a.Complete the income statement and balance sheet for Whittaker, Inc. Show how each amount was determined.

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b. After completing part a, use your answers to recompute each of the financial ratios provided as additional information.

Step 1 of 17

Methodology: One has to complete the figures of balance sheet first. Enough information is provided so that the answer can be approached from several different angles. It is not compulsory to track a lock-step pattern to find the correct results.

a) Prepare complete income statement and balance sheet of Whittaker, Inc.: